A $150 million deal to privatize a public psychiatric hospital in Terrell has been canceled after a state audit revealed contract irregularities by the Texas Health and Human Services Commission.
The State Auditor's Office released a report on Wednesday detailing how the process to privatize Terrell State Hospital bypassed procurement laws, used a flawed scoring system and did not consider if the state would receive the most cost-effective deal.
State Sen. Robert Nichols, R-Jacksonville, requested the audit last year, amid questions about both the commission's bidding process, and whether the agency had the authority to allow a private company to run a state psychiatric hospital without legislative approval.
The auditor's report said that Health and Human Services Executive Commissioner Kyle Janek played a role in some of the contract problems.
The tentative contract was approved last October, but Janek stopped talks with Correct Care Solutions, formerly GEO Care, in late February about six weeks after the audit began.
The report claims Janek ordered commission staffers to prepare bid documents for a five-year Terrell contract four months before the agency had permission to pursue privatization. It also said the commission solicited a $30 million annual contract, which the audit called "unreasonable" because it would take almost $60 million to operate the hospital in 2015.
Nichols said he was very disappointed with the results of the auditors findings related to the procurement of privatization of the Terrell State Hospital. He said he appreciated the effort by State Auditor John Keel and staff who he sat down with on Wednesday to view the report
"The audit identified numerous failures to follow standard contract procurement procedures as well as Health and Human Services own policy on contracts," he said in a statement. "People employed by mental state hospitals around the state can be assured the agency will not pursue any further privatization of state hospitals without authorization from the Texas Legislature."
In late 2014, Nichols expressed concern about Janek's possible privatization of 10 state psychiatric hospitals, including Rusk State Hospital.
Janek said he halted the contracts because "we negotiated with the company that did respond, yet I felt that we were not going to reach a deal that was good for the taxpayers."
A spokeswoman for Correct Care Solutions said the company was disappointed the contract had been canceled.
Janek said last year that he began to explore privatization as a way to improve the hospital's services after a 65-year-old Pittsburg died at the hospital after being restrained for 55 hours.
This is the third contract in four months from the Texas Health and Human Services Commission that has had issues.
In February, Sen. John Whitmire, D-Houston, called for Janek to step down over awarding a $110 million contract Whitmire said was done contrary to state bidding rules.
Janek also has faced criticism for approving a $97,020 payment to help a staff member obtain an MBA while working as an executive staff member at the commission.
Editorial Editor Roy Maynard and the Associated Press contributed to this report.